Presented to: Professor Dr. Nabila Abass Presented by: Roula Jannoun Copyright 2010 - Roula Jannoun- BAU Known for its fast, affordable fashion, retail chain Zara has built up a multi-billion dollar brand through listening and reacting quickly to its customers
As soon as the doors close, the staff turns into a sort of investigation unit in the forensics of trend spotting, looking for evidence in the piles of unsold items that customers tried on but didn’t buy. Are there any preferences in cloth, color, or styles offered among the products in stock?
PDAs are also linked to the store’s point-of-sale (POS) system that captures customer purchase information.
In less than an hour, managers can send updates that combine the hard data captured at the cash register with insights on what customers would like to see.
All of this valuable data allows the firm to plan styles and issue rebuy orders based on feedback rather than hunches and guesswork. The goal is to improve the frequency and quality of decisions made by the design and planning teams.
Data on what sells and what customers want to see goes directly to “The Cube” (central command of the Inditex Corporation outside La Coruña0), w here teams of some three hundred designers crank out an astonishing thirty thousand items a year versus two to four thousand items offered up at big chains like H&M (the world’s third largest fashion retailer) and Mango,
Individual bonuses are tied to the success of the team, and teams are regularly rotated to cross-pollinate experience and encourage innovation.
In the world of fashion, even seemingly well-targeted designs could go out of favor in the months it takes to get plans to contract manufacturers, tool up production, then ship items to warehouses and eventually to retail locations.
Zara excels in getting locally targeted designs quickly onto store shelves
When Madonna played a set of concerts in Spain, teenage girls arrived to the final show sporting a Zara knock-off of the outfit she wore during her first performance.
The average time for a Zara concept to go from idea to appearance in store is fifteen days versus their rivals who receive new styles once or twice a season. Smaller tweaks arrive even faster.
Zara is twelve times faster than Gap despite offering roughly ten times more unique products!
At H&M, it takes three to five months to go from creation to delivery—and they’re considered one of the best.
Other retailers need an average of six months to design a new collection and then another three months to manufacture it.
At Zara, most of the products you see in stores didn’t exist three weeks earlier, not even as sketches.
The firm is able to be so responsive through a competitor-crushing combination of vertical integration and technology-orchestrated coordination of suppliers, just-in-time manufacturing, and finely tuned logistics.
Vertical integration is when a single firm owns several layers in its value chain
A value chain is the set of activities through which a product or service is created and delivered to customers.
While H&M has nine hundred suppliers and no factories, nearly 60 percent of Zara’s merchandise is produced in-house , with an eye on leveraging technology in those areas that speed up complex tasks, lower cycle time, and reduce error.
Profits from this clothing retailer come from blending math with a data-driven fashion sense.
Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to each specific store during twice-weekly shipments, ensuring that each store is stocked with just what it needs.
Outside the distribution center in La Coruña, fabric is cut and dyed by robots in twenty-three highly automated factories.
Zara makes 40 percent of its own fabric and purchases most of its dyes from its own subsidiary.
Roughly half of the cloth arrives undyed so the firm can respond as any midseason fashion shifts occur.
After cutting and dying, many items are stitched together through a network of local cooperatives that have worked with Inditex so long they don’t even operate with written contracts.
The firm does leverage contract manufacturers (mostly in Turkey and Asia) to produce staple items with longer shelf lives, such as t-shirts and jeans, but such goods account for only about one-eighth of dollar volume.
Trucks serve destinations that can be reached overnight, while chartered cargo flights serve farther destinations within forty-eight hours.
The firm recently tweaked its shipping models through Air France–KLM Cargo and Emirates Air so flights can coordinate outbound shipment of all Inditex brands with return legs loaded with raw materials and half-finished clothes items from locations outside of Spain.
Zara is also a pioneer in going green. In fall 2007, the firm’s CEO unveiled an environmental strategy that includes the use of ren ewable energy systems at logistics centers including the introduction of biodiesel for the firm’s trucking fleet.
The constant parade of new, limited-run items also encourages customers to visit often.
The average Zara customer visits the store seventeen times per year, compared with only three annual visits made to competitors.
Even more impressive—Zara puts up these numbers with almost no advertising.
The firm’s founder has referred to advertising as a “pointless distraction.” The assertion carries particular weight when you consider that during Gap’s collapse(american), the firm increased advertising spending but sales dropped.
Fashion retailers spend an average of 3.5 percent of revenue promoting their products, while ad spending at Inditex is just 0.3 percent.
While stores provide valuable front-line data, headquarters plays a major role in directing in-store operations.
Software is used to schedule staff based on each store’s forecasted sales volume, with locations staffing up at peak times such as lunch or early evening.
The firm claims these more flexible schedules have shaved staff work hours by 2 percent. This constant refinement of operations throughout the firm’s value chain has helped reverse a prior trend of costs rising faster than sales.
Even the store displays are directed from “The Cube,” where a basement staging area known as “Fashion Street” houses a Potemkin village of bogus storefronts meant to mimic some of the chain’s most exclusive locations throughout the world.
It’s here that workers test and fine-tune the chain’s award-winning window displays, merchandise layout, even determine the in-store soundtrack. Every two weeks, new store layout marching orders are forwarded to managers at each location.
Limitations of Zara’s Spain-centric, just-in-time manufacturing model.
By moving all of the firm’s deliveries through just two locations, both in Spain, the firm remains hostage to anything that could create a disruption in the region.
Firms often hedge risks that could shut down operations—think weather, natural disaster, terrorism, labor strife, or political unrest—by spreading facilities throughout the globe. If problems occur in northern Spain, Zara has no such fall back.
The firm is potentially more susceptible to financial vulnerabilities as the Euro has strengthened relative to the dollar.
Zara’s Spain-centric costs rise at higher rates compared to competitors, presenting a challenge in keeping profit margins in check.
Rising transportation costs are another concern. If fuel costs rise, the model of twice-weekly deliveries that has been key to defining the Zara experience becomes more expensive to maintain.
Zara is able to make up for some cost increases by raising prices overseas
In the United States, Zara items can cost 40 percent or more than they do in Spain. Zara reports that all North American stores are profitable, and that it can continue to grow its presence, serving forty to fifty stores with just two U.S. jet flights a week.
Innovation: not to stop but always producing new things based on customer desires and changes in market.
Segmentation: the company took advantage of unserved segment, a segment where some one might offer good quality fashion at a reasonable price and managed to insert themselves in.
Simple strategy: the company is looking for a target without analyzing ages or lifestyles, which simplifies things a lot. It targets buyers who like fashion and that is not limited by international borders.
Selection of personnel: having motivated and dedicated personnel, people who think about the company 24 hours a day, people who understood this type of work from the outset.
Quick response time that led to significant compression of cycle times enabled by improvements in information technology and encouraged by shorter fashion cycles and deeper markdowns.
Experience regarding real estate, personnel costs, hiring and other contract negotiating.
When the economy falters, consumers simply buy less and may move a greater share of their wallet to less-stylish and lower-cost offerings from deep discounters like Wal-Mart.
Zara is particularly susceptible to conditions in Spain, since the market accounts for nearly 40 percent of Inditex sales, as well as to broader West European conditions (which with Spain make up 79 percent of sales).
Global expansion will provide the firm with a mix of locations that may be better able to endure downturns in any single region.
Zara’s winning formula can only exist through management’s savvy understanding of how information systems can enable winning strategies
Many tech initiatives were led by José Maria Castellano, a “technophile” business professor who became Ortega’s right-hand man in the 1980s).
It is technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns.
A strategist must always scan the state of the market as well as the state of the art in technology, looking for new opportunities and remaining aware of impending threats.